Setting your business up for success: Building a strong patent portfolio

A company’s innovations and other intellectual property (IP) assets can be used to attract investors as well as business purchasers. Generally, investors need to identify value before exchanging cash for equity. For example, in 2013 the median investment size during an angel round of funding was $600K, while the median pre-money business valuation was $2.5M. Thus, in 2013, angel investors were willing to invest about $600K in a company valued at approximately $2.5M. One factor that investors examine to place a value on a company is the strength of the company’s IP portfolio, and more specifically, the patent portfolio.

There is value in language

Generally, patents consist of a description of the inventive concept, one or more figures, and the patent claims. The patent claims define the essence and boundaries of the inventive concept. As such, when a patent owner asserts their right to exclude another from making, using, offering for sale or selling an invention, they assert their right to exclude on the basis of the language in the claims of one or more of their patents. When an investor determines the strength of a company’s patent portfolio, the investor examines, among other things, the language of the patent claims to evaluate the scope of the patent owner’s (i.e. the company’s) right to exclude.

The specific language used within the claims can affect the ability to enforce or license a patent. For example, a subtle but important tool used in patent claims that can influence the scope of the patent owner’s right to exclude is the use of “configured to” or “operable to” language within the patent claims.

“Configured to” language can widen the scope of a patent claim relative to a patent claim using active language. For example, if a patent claim recites “a wireless device for receiving power,” the owner of that patent may not be able to enforce their rights against an infringing device until the infringing device actually begins to receive power. Thus, it may be difficult for the patent owner to enforce their rights to exclude a manufacturer from making a wireless device that can receive power when the manufacturer’s wireless device does not receive power until it is out of the control of the manufacturer and in the possession of an end user. Conversely, if a patent claim recites “a wireless device configured to receive power,” the patent owner may be able to enforce their exclusivity rights against the manufacturer making the wireless device because, once it is manufactured, the device is configured to receive power regardless of whether the wireless device is actually receiving power. Thus, by using “configured to” language instead of active language, a patent owner can strengthen their patent portfolio by increasing their right to exclude.

Saying less can be worth more

Before an invention is patented, the patent claims of a patent application covering the concepts of the invention are subject to examination by a patent examiner at, for example, the United States Patent and Trademark Office (USPTO). During examination, (referred to as prosecution), an examiner will cite one or more reference(s) that the examiner believes discloses or renders obvious the concepts of the patent claims. As such, in order for the patent claims to “overcome” the references cited by the examiner, a patent practitioner (such as a patent attorney) can either amend the patent claims further limiting their scope or argue that the cited one or more reference(s) do not disclose what the patent claims recite. Generally, the more language or limitations recited in or added to the patent claims, the narrower the scope of a patent owner’s right to exclude once the patent is granted. As such, a patent practitioner who can skillfully craft succinct patent limitations to obtain a patent does so without over-limiting the scope of the patent claims. Thus, an investor will attribute more strength to a patent portfolio with patents having well-crafted claims, because well-craft claims maximize who a patent owner can assert their right to exclude against.

Furthermore, during prosecution, a log (referred to as the “file wrapper") documents every change to the patent claims, arguments made by the patent practitioner, and correspondence between the USPTO and the patent practitioner concerning a patent application. As such, a file wrapper with too many statements arguing for a patent could limit the future potential arguments made when a patent owner attempts to assert their right to exclude. Additionally, a file wrapper of a patent that is too short (i.e. not enough references cited against it) can indicate that the patent may be vulnerable to additional prior art references. As such, a patent practitioner who can limit the number of arguments and successfully argue or skillfully amend the patent claims to overcome an adequate number of cited references can further maximize the value of the patents of a patent portfolio. Thus, an investor will attribute more strength to a patent portfolio having little or no limiting statements made during prosecution having been well vetted during prosecution.

Erosion of the right to exclude

As previously discussed, a patent gives the patent owner a right to exclude others from making, using, offering for sale or selling an invention covered by the language of the patent claims. On occasion, patents may be subject to a mandatory license arising, for example, out of a standards’ body agreement. Generally, a mandatory license obligates a patent owner to grant permission to make, use, offer for sale and sell the concepts covered by the language of their patent’s claims to another in exchange for compensation. While mandatory licenses can decrease the scope of a patent owner’s right to exclusivity, mandatory licenses of essential patents (i.e. patents that cover the core concepts of a company’s products) can be particularly debilitating to the viability of the company by reducing the sales revenue generated by the company’s products. Accordingly, investors often seek to confirm whether patents, and particularly essential patents, of a patent portfolio are subject to a mandatory license in order to determine the strength of the patent portfolio and the overall value of the company.

Conclusion

A company’s management, seeking to attract investors or seeking to attract potential purchasers, should carefully manage their patent portfolio to maximize the company’s potential value. However, while management should be mindful of their patent portfolios, proper management of a patent portfolio requires the expertise of patent counsel capable of maximizing patent claim scope while efficiently navigating patent applications through prosecution.